Transportation cost on Nepal's third country imports and exports via India has come down by at least Rs 15,000 per container after India waive Goods and Services Tax (GST) on all transit services provided to Nepal.
The waiver, which came into force from September 29, can lower consumer prices of imported goods, albeit marginally, and also make Nepali goods cheaper in the destination country, according to officials of Nepal Freight Forwarders' Association (Neffa).
Issuing a notice on September 29, India announced waiver of GST of 5 percent on transportation cost and 18 percent GST on other service charges related to transit cargo.
According to Neffa officials, 45 percent of the total saving (Rs 15,000 per container) is related to transportation services, while remaining 55 percent is related to other services like port handling, storage, and insurance of containers, among others.
Before GST came into implementation in India on July 1, India was levying 4.5 percent tax on transport and 15 percent on other services.
The waiver announced recently by India can save Rs 1.2 billion annually, according to Neffa's calculation. The transportation cost between Nepal and Kolkata port is US$ 1,500.
“The waiver has brought a respite to importers and exporters as well as freight forwarders.
The government, as well as Neffa, had been strongly lobbying with India for removal of GST on transportation and other port services,” Prakash Singh Karki, president of Neffa, said.
“As Nepali freight forwarders use around 80,000 containers per year, the waiver will help us save around Rs 1.2 billion annually. It will reduce cost of goods in Nepal to some extent,” he added.
Around 75,000 containers bring third-country goods from India every year, while around 5,000 transport Nepali exportable goods to the Kolkata port.
“During his recent India visit, Prime Minister Sher Bahadur Deuba had reiterated Nepal's demand for waiver of GST on transport and port related services for Nepal's third country imports and exports. India has responded positively to Nepal's request,” Karki added.
Spokesperson for the Department of Customs (DoC), Kulraj Gyawali, also informed that waiver of GST on supply of services associated with transit cargo has relieved Nepali importers/exports and freight forwarders.
India has also provided such waiver for Bhutan.
A notice of India's Ministry of Finance dated September 29 states that all the GST applied on supply of services associated with transit cargo to Nepal and Bhutan (landlocked countries) have been declared nil. The notice further reads: “India's central government decided to amend the GST rates after being satisfied that it (amendment) is necessary for the public interest so to do on the recommendation of the council.”
However, the notice has not clarified what the public interest means.
Waiver of GST on supply of services associated with transit cargo has multiple benefits for Nepal. It relieves freight forwarders from a whopping 18 percent service charge on detention of containers after 14 days. “Almost all freight forwarders had to pay detention of minimum four days on average due to delay in transportation and unloading of goods at Nepali ports. We were required to pay an additional GST of Rs 3,600 on top of Rs 20,000 detention charge per container,” Naresh Agrawal, the treasurer of Neffa, said.
Nepali economists and traders had strongly lobbied for removal of GST on supply of services associated with transit cargo as they fear it would make third country goods dearer in Nepal.